Fifth Circuit Reverse $663 Million Verdict in False Claims Act Case
By Sean Lally, Staff Writer
In 2005, Trinity Industries altered a road safety device known as the ET-Plus guardrail, first designed by engineers at the Texas A&M Transportation Institute (TTI). The ET-Plus was built to prevent guardrails from spearing oncoming vehicles and to absorb shock. Trinity, the manufacturer of the guardrail, worked with TTI in 2005 to increase the height of the ET-Plus, to accommodate the increased number of SUVs on the road.
As a result, the guardrail’s height increased from 27.75 inches to 31 inches. In addition, engineers decreased the guide channel width from five to four inches. This latter change (and other related fabrication alterations) would lead to a series of legal disputes culminating in a recent Fifth Circuit ruling reversing a $663 million verdict from the lower courts.
Alterations Not Reported, Allegedly
As observed in the 42-page decision written by Circuit Judge Patrick Higginbotham, Joshua Harman, a former customer of Trinity who had failed to build his own guardrail business, brought allegations to the Federal Highway Administration (FHWA), after a protracted nationwide investigation into the safety status of the ET-Plus. At the 2012 meeting, Harman alleged that certain alterations – namely the change made to the guide channel – were not reported to the FHWA in the 2005 crash test report.
According to evidence put forward by Trinity’s counsel, Harman had a vested interest in recalling the millions of ET-Plus guardrails, as he (and his company, SPRIG) could “capture 20 percent of the U.S. end terminal market in 18 to 24 months.” After speaking with Trinity about the allegations, the FHWA decided that the ET-Plus was still entitled to reimbursement. Nonetheless, Harman filed claims under the False Claims Act (FCA).
Still, according to an email correspondence and a memorandum, the FHWA confirmed that the ET-Plus remained eligible for reimbursement. Notwithstanding these confirmations, a trial jury found in favor of Harman, granting $663,360,750 in trebled damages, civil penalties and court-related costs. Harman was awarded $199 million of the total. Trinity appealed for a retrial based on an independent task force’s investigation, but a district court denied the request.
Fifth Circuit Reverses
Upon appeal, the case was brought to the Fifth Circuit US Court of Appeals, where a unanimous three-judge panel found in favor of Trinity and reversed the lower court’s $663 million ruling. Referring to FHWA’s insistence that the guardrail is eligible for reimbursement, Judge Higginbotham wrote the following: “When the government, at appropriate levels, repeatedly concludes that it has not been defrauded, it is not forgiving a found fraud -- rather it is concluding that there was no fraud at all.”
Stocks Go Up
According to analyst Matt Elkott, the company’s shares will likely continue their upward trend following the Fifth Circuit’s decision: “The stock is up materially after the close, and we think the momentum should continue in the coming days,” he said. The shares increased by 9 percent, up to $34.78, after the ruling was announced, according to Reuters.
Statements From Trinity
Jeff Eller, spokesperson for Trinity, expressed contentment with the circuit court’s ruling: “[The ruling] affirms our longstanding belief that the ET-Plus system is safe and no fraud was committed.”
And earlier this month, on November 14th, the Fifth Circuit refused to hear the case en banc, marking another defeat for Harman and a resounding win for Trinity. In a statement, the company said it “will continue to monitor any pursuit by the Relator of further appellate recourse in this matter.”
Arguments Finally Heard
In the end, the appeals court agreed with the arguments put forward by Ethan Shaw, Trinity’s attorney, at the initial trial. Statement after statement from the FHWA confirmed the soundness of the ET-Plus. Not only were statements released, but the agency continually reimbursed Trinity for its guardrails following the allegations, evincing a lack of fraudulent behavior. Trinity, with the help of Shaw, was finally able to make their arguments heard.